Appellant
Charles Maki has appealed in proper person from a district court order
declaring that real property owned by Maki's sister, respondent Esther Chong,
was not subject to execution because of a properly filed homestead declaration
under NRS 115.010. Maki previously
obtained a default judgment against Chong on his complaint for breach of
contract, fraud, and conversion. The
complaint alleged that Chong converted Maki's settlement check and used the
funds to purchase the real property at issue.

Although
public policy favors homestead exemptions in all but a few situations, we
cannot allow a debtor to be shielded by the homestead exemption to further a
fraud or similar tortious conduct. We therefore
conclude that the homestead exemption does not apply to transactions involving
fraud or similar tortious conduct.
Under the doctrine of equitable liens, Chong's homestead exemption does
not extend to process of the court regarding enforcement of Maki's default
judgment.

FACTS

Maki, an Ely State Prison inmate, signed a
limited power of attorney allowing Chong to cash his State Industrial Insurance
System (SIIS) settlement check. The
settlement check represented a permanent partial disability benefit award of
$37,974.62. Chong allegedly agreed to
open a savings account and deposit the check.
She was to use the money to obtain a criminal defense attorney to assist
Maki in his appeal.

Chong
cashed the check; however, she did not open an account for Maki. Instead, Chong used Maki's money to purchase
a home in Washoe County. Chong also
informed Maki that each month, she cashed his $100 SIIS benefit check. Chong told Maki she would not be returning
any of his funds.

Maki
filed a complaint for breach of contract, fraud, and conversion in which he
sought declaratory and injunctive relief, compensatory damages, and court
costs. Chong failed to file a response,
and Maki ultimately obtained a default judgment.

Maki
recorded a purported "property lien" in Washoe County against any and
all property Chong owned on March 10, 1998.
Chong recorded a homestead declaration on December 31, 1998. Maki then filed a motion asking the district
court to issue a writ of execution pursuant to NRS Chapter 21, which the
district court granted. Maki mailed a
notice of execution to Chong and filed a copy with the Seventh Judicial
District Court. In compliance with NRS
21.112, Chong mailed an affidavit setting out a claim of exemption,[1]
asserting that her home was exempt from execution because her equity did not
exceed $125,000 and she had previously filed a homestead declaration.

After Chong filed her notice of claim of
exempt property, Maki filed a motion for a hearing on the exemption issue. The district court granted the motion and
found Chong's affidavit for exemption null and void. Maki proceeded with execution against Chong's property, and the
district court scheduled a sheriff's sale of the property.

Eleven
days before the scheduled sale and after obtaining counsel, Chong filed a
motion for relief from the district court's order. The district court ordered a stay of the execution sale and
conducted a hearing, with Maki's presence waived due to his incarceration. After the hearing, the district court found
that Chong had filed a valid homestead declaration on the property in issue and
the equity in that property was less than $125,000. Based upon these findings, the district court concluded that the
property was exempt from execution. The
district court vacated the initial order regarding the issue of exemption. This appeal followed.

DISCUSSION

"The
purpose of the homestead exemption is to preserve the family home despite
financial distress, insolvency or calamitous circumstances . . . ."[2] Thus, a homestead exemption prohibits a
forced sale, subject to several statutory exceptions, none of which apply here.[3] Specifically, the homestead exemption is
inapplicable to legal tax liens, mortgages, deeds of trust, and homeowner's
association liens.[4] We have also
allowed the homestead exemption to be disregarded to satisfy child support
obligations.[5] In Breedlove v.
Breedlove,[6] we concluded the homestead exemption did not apply because
the debtor, a parent who owed child support arrearages, was "not the type
of debtor whom the legislature sought to protect."

There
is a time-honored principle that states that he who keeps property that he
knows belongs to another must restore that property.[7] This idea, manifested in the doctrine of
equitable liens, permeates our entire system of justice regarding equity. "[O]ne who has purchased real property
with funds of another, under circumstances which ordinarily would entitle such
other person to enforce a constructive trust in, or an equitable lien against, the
property, cannot defeat the right to enforce such trust or lien on the ground
that [the homestead exemption applies]."[8]

Although
none of our previous decisions is directly on point, other jurisdictions have
squarely addressed this issue.[9] In Webster
v. Rodrick,[10] the Washington Supreme Court concluded that the doctrine of
equitable liens provided the proper relief for a creditor when a debtor
fraudulently obtained the money used to purchase real property. "'Equitable liens become necessary on
account of the absence of similar remedies at law.'"[11] The court in Webster refused to let
the debtor "use the statutes as a sword to protect a theft."[12] Likewise, Chong is undeserving of protection
under the homestead exemption if she fraudulently obtained the funds to
purchase her home.

"The
homestead exemption statute cannot be used as an instrument of fraud and
imposition."[13] Public policy
supports our application of an exception to homestead exemptions for victims of
fraud or similar tortious conduct. An
individual using fraudulently obtained funds to purchase real property should
not be protected by the homestead exemption because the exemption's purpose is
to provide protection to individuals who file the homestead exemption in good
faith.

Chong
obtained Maki's funds by fraudulent means; therefore, the homestead exemption
does not protect her. Chong never
responded to Maki's complaint, and the district court entered a default
judgment. Based upon our opinion today,
Chong's homestead exemption is invalid.

CONCLUSION

Under
equitable lien principles, the homestead exemption is inapplicable when the
proceeds used to purchase real property can be traced directly to funds
obtained through fraud or similar tortious conduct. We conclude that, as in the case of a debtor owing child support
obligations, debtors who fraudulently acquire funds are "not the type of
debtor whom the legislature sought to protect."[14] Chong's homestead exemption cannot apply to
prevent a forced sale on execution of Maki's judgment. We reverse the district court's order and
remand with instructions for the district court to enter an order consistent
with this opinion that Chong's homestead exemption is invalid against Maki's
default judgment.

**********FOOTNOTES**********

[1] NRS 21.112(1) provides that

[i]n order
to claim exemption of any property levied on, the judgment debtor must, within
8 days after the notice prescribed in NRS 21.075 is mailed, serve on the
sheriff and judgment creditor and file with the clerk of the court issuing the
writ of execution an affidavit setting out his claim of exemption.